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					A Gu ide to the

      N atio nal

B a n king System 



                     R OF THE
                   LE         C
               L




                                UR
   CO M P T R O




                                  R ENC Y




                      186 3




           Washington, DC
                   April 2008
                         A Guide to the National Banking System




This guide, prepared by the Office of the Comptroller of the Currency (OCC), is intended
to provide an overview of the national banking system, its regulatory structure, and
entrance into it. The OCC encourages organizing groups, financial institutions not currently
regulated by the OCC, and national banks to consult with appropriate OCC contacts or
counsel familiar with banking law to obtain advice on specific issues.
                                         A Guide to the National Banking System




                                               Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        1



Creation of the National Banking System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                           3

           The System Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

           The OCC Today . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3



The OCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       5

           Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

                 Lines of Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

                 Bank Supervision Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

           Effective Use of Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

           OCC Staff Expertise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

           The OCC’s Outreach Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

           Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

           Assessments and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10



The National Bank Charter                               . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

           The OCC’s Licensing Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

                 Entry into the National Banking System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

                     Establish a New National Bank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

                     Convert an Existing Institution to a National Bank . . . . . . . . . . . . . . . . . . . . . . . 13

           Permissible National Bank Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

                 Operating Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

                 Financial Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

                 Bank Service Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

                 Other Equity Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

                                          A Guide to the National Banking System




Supervision and Oversight. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                         17

           Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

           Supervision by Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

           Risk Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

           Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

           Specialized Area Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18



Checks and Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  21

           The Ombudsman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

                 National Bank Appeals Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

                 Bank Examination Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

                 Customer Assistance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

           Program and Management Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22



Appendixes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       23

           A. OCC Locations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

           B. OCC Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

           C. OCC Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

                             A Guide to the National Banking System




                                  Introduction


T    his guidprovides an overview of the national banking system, its regulation, and the Office
of the Comptroller of the Currency (OCC). Specifically, it:

        •	   Provides background on the national banking system.

        •	   Provides an overview of the OCC’s organization, including its mission,
             structure, and staff.

        •	   Discusses the value and approach of OCC supervision.

        •	   Outlines the OCC’s corporate application process and discusses permissible
             banking activities for national banks.

        •	   Discusses the OCC’s supervision philosophy and its examination process.

        •	   Shows how the OCC uses checks and balances to ensure equitable, quality
             supervision.

        •	   Includes OCC contacts, additional OCC publications, and other resources.




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                              A Guide to the National Banking System




                     Creation of the National 

                        Banking System


T   he national banking system was conceived by President Abraham Lincoln and Treasury
Secretary Salmon P. Chase to revive the national economy and promote a uniform system of
currency and credit. The National Currency Act (Act), which created the national banking
system, was enacted in 1863. Provisions of that act were reenacted and clarified by the National
Bank Act a year later, in 1864. The opening in Philadelphia of the first bank chartered under the
new system presented the United States with a fresh means to promote a sense of nationhood
based on uniformly regulated financial institutions and a growing economy. The issuance of
“national bank notes” by national banks alleviated a serious obstacle to interstate commerce that
existed before the Civil War.

Under the direction of the Comptroller of the Currency, the national banking system acquired a
reputation for safety and soundness that inspired confidence from the banking public.


                                The System Today
Today the national banking system consists of around 2,000 national banks, their branches, and
other facilities located throughout the United States and in many countries around the world.
Although national banks are no longer involved in creating paper currency, they continue to
play a critical role in creating and distributing the nation’s wealth, to ensure a healthy, growing
economy.


                                  The OCC Today
The OCC’s mission is to charter national banks, to oversee a nationwide system of banking
institutions, and to assure that national banks are safe and sound, competitive and profitable,
and capable of serving in the best possible manner the banking needs of their customers. The
OCC’s mission ensures a robust and financially sound national banking system in which national
banks soundly manage their risks, comply with applicable laws, compete effectively with other
providers of financial services, offer products and services that meet the needs of customers, and
provide fair access to financial services and fair treatment of their customers. For more than
140 years, the OCC has been a leader in examining national banks, evaluating industry trends,
identifying emerging banking issues, and, through the supervisory process, assisting national
banks to meet the challenges of today’s fast-changing financial markets.




                                                  3

                             A Guide to the National Banking System




Throughout its history, the OCC has sought to provide the highest quality bank supervision. The
OCC’s approach to bank supervision has evolved in response to the experiences of many years.
It is based on a judicious combination of on- and off-site activity conducted by locally based
examiners and front-line supervisors who know the communities where national banks operate.
It is backed by the strength and depth of a national organization of professionals dedicated to
the interests of a safe, sound, fair, and competitive banking system. The OCC maintains a high-
quality, professional staff of bank examiners, risk specialists, economists, and attorneys to ensure
quality bank supervision.

The OCC also ensures that supervision is fair and balanced. The OCC’s Office of the
Ombudsman serves a key role in making the OCC more accessible to the banking industry and its
customers. The Ombudsman provides bankers with an avenue to discuss problems in confidence,
explore options, and seek advice. The OCC’s Customer Assistance Group, part of the agency’s
Office of the Ombudsman, was created to assist consumers in resolving complaints about national
banks, offer guidance, and answer questions.




                                                  4

                             A Guide to the National Banking System




                                       The OCC


T    he OCC’s staff of national bank examiners and other professional and support personnel
examine and supervise national banks and federally licensed branches and agencies of foreign
banks. Supervision policy and guidance is centralized at the national level to ensure continuity
and consistency nationwide. Although this structure is instrumental in setting the OCC’s overall
direction, the OCC believes that supervision of a national bank occurs most effectively when
performed by staff located in or near the bank. This section describes how the OCC uses a
flexible structure, deploys its expert staff, and communicates regularly with bankers to ensure
effective supervision at the local level as well as nationwide.


                                   Organization
The OCC’s organizational structure is designed to promote top-quality bank supervision. The
OCC’s structure is flexible so that it can adjust its supervision to changes in the industry’s
structure and activities. Most importantly, decision-making authority is decentralized through
examiners, who interact regularly with national banks. Decentralized decision making, coupled
with centralized policymaking and a system of checks and balances, provides national banks with
the assurance that OCC’s supervision is fair, balanced, and expert with respect to their business
focus.

Approximately 1,800 OCC bank examiners work from numerous locations around the country
and in London. In addition to its national headquarters in Washington, DC, the OCC maintains
district and field offices. Although the national headquarters sets policy and direction and
oversees bank supervision, supervision of most national banks is coordinated through four district
offices, located in New York City, Chicago, Dallas, and Denver, and 48 field offices located in
cities throughout the United States.

Assistant deputy comptrollers (ADCs) in field office locations and examiners-in-charge (EICs) in
midsize and large banks maintain close local contacts with individual national banks. The OCC’s
nationwide examiner staff conducts on-site reviews of national banks and provides ongoing
supervision of bank operations. Legal and licensing staffs are based at the national headquarters
as well as in the four district offices.

The OCC’s broad responsibilities and national perspective give the agency unique breadth and
depth in understanding the banking industry and its emerging issues and challenges. The OCC’s
workforce also includes subject matter experts who work with ADCs and midsize and large
bank EICs across the country. Collectively, they enable the OCC to deliver quality supervision
effectively at the local level.




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                              A Guide to the National Banking System




Lines of Supervision
The OCC has aligned its domestic supervisory operations into two lines of supervision
— community banks and midsize banks, on one hand, and large banks, on the other. The OCC
implemented this structure to enhance consistency, gain efficiency, and serve the diverse national
bank population more effectively.

        •	   Community bank supervision includes community banks involved mostly in
             traditional banking activities. The OCC’s district operations are focused on
             the needs of these national banks.

             Midsize bank supervision generally includes companies with national
             bank assets totaling between $8 and $25 billion, either in a single charter
             or aggregated among several charters. Oversight of these more complex
             organizations is centralized under a single deputy comptroller located in
             Washington, DC, to facilitate consistent supervision.

        •	   Large bank supervision includes the largest national banking companies,
             which generally are involved in the most complex activities and operate over
             wide geographic areas. This line of supervision is coordinated through the
             Large Bank Supervision Department headquartered in Washington, DC, and
             is carried out by examination staff assigned to those companies on a full-time
             basis.

Bank Supervision Staff
The ADCs and large bank EICs are front-line supervisors. They monitor the condition of
assigned banks. They also schedule and conduct regular safety and soundness, compliance,
and specialized area examinations. In addition, they maintain an awareness of trends within the
banking industry and the financial services marketplace and deal with a variety of issues that pose
potential risks to the institutions they supervise. The ADCs supervise the majority of national
bank examiners who work from field offices situated strategically throughout the country to best
serve the population of national banks. Large bank EICs and their staff are assigned supervision
of a particular bank.

The OCC uses a “Portfolio Manager Approach” to bank supervision to build examiners’ in-depth
knowledge of community banks and their operating environments. Local examiners, who have
substantial authority, perform the direct bank supervision activities. This fosters effective and
consistent communications between examiners and banks, assures continuity in supervisory
matters, and enhances the OCC’s responsiveness to bankers’ questions and concerns.




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                              A Guide to the National Banking System




The OCC determines the frequency of its examinations (the supervisory cycle) based on the
bank’s size, complexity, risk profile, and condition. Examiners meet with bank management and
the bank’s board of directors throughout the supervisory cycle to obtain information or discuss
issues. Full-scope examinations normally are conducted either annually or up to every 18 months
(12 CFR 4.6), but examination activities may be spread throughout the supervisory cycle. The
portfolio manager contacts bank management to:

        •	   Discuss current issues in the bank and in financial trends.

        •	   Follow-up on matters from prior examinations.

        •	   Explore the bank’s plans for new products and services, expansion, or other
             possible changes.

In this way, the OCC helps national bankers explore possible pitfalls in new products and
services, flag emerging areas of concern, and address existing problems before they worsen.
In addition, portfolio managers can provide information and tools that may help local bankers
evaluate their business.

The OCC assigns a dedicated EIC to each midsize bank to develop and implement a supervisory
strategy, with assistance from other examiners who also are involved in the supervision of either
community or large banks. Having one examiner assigned overall responsibility for continuous
supervisory oversight allows for ongoing communication with bank management. This
supervisory structure assists the OCC in the prompt identification of supervisory issues in these
growing and increasingly complex institutions.

The OCC maintains a resident onsite EIC, supported by a resident core staff of examiners, in each
of the largest banks. These examiners, who report directly to a deputy comptroller in Large Bank
Supervision, perform ongoing analysis related to the banks’ condition, risk profiles, economic
factors, and marketplace developments.


                       Effective Use of Technology
OCC staff uses technology to promote efficient, consistent supervision and effective
communication and to resolve issues quickly. Examiners, even in remote locations, can access
a wealth of information through computers loaded with current policy guidance and specialized
examination and diagnostic tools, and that are connected to network systems. The OCC’s
extensive resources are available increasingly to other audiences as well as through the OCC’s
Web site (http://www.occ.treas.gov/).

National BankNet is a system that allows the OCC to communicate with and deliver services
via the Internet to the financial institutions it regulates. Available exclusively to national banks,
BankNet is a secure extranet site designed to meet bankers’ needs and complement OCC




                                                   7

                             A Guide to the National Banking System




regulatory activities. It accommodates a bank’s real-time decision making, improves two-way
communications between the bank and the OCC, and delivers products and services of value
to bankers. National BankNet serves as a primary system for the agency to communicate with
national banks in times of national emergency.

National BankNet contains an electronic process, called e-Corp, for completing, signing,
and submitting corporate applications. e-Corp features hyperlinks to all laws, regulations,
and licensing terms; the ability to save working drafts of applications; complete application
checking; and easy on-line signature and submission. e-Corp is part of the OCC’s continuing
effort to eliminate unnecessary regulatory burden, simplify administrative processes, enhance
communications, reduce paperwork, and take full advantage of e-government mandates.


                             OCC Staff Expertise
Like the banking industry, the OCC adjusts its hiring, training, and deployment of staff to reflect
the changing mix and increasing complexity of bank activities. The OCC seeks to anticipate
new needs, and it creates programs to enhance employee expertise in specific areas. The OCC
employs experts in consumer compliance, information technology, fraud, fiduciary and asset
management, as well as attorneys, economists, and staffs with in-depth knowledge in licensing,
bank accounting, retail credit, capital markets, community development, risk modeling, and other
areas.

The OCC recognizes the value many bankers derive from having seasoned and knowledgeable
examiners with diverse experience and specialized skills examining their banks. The OCC
regularly modifies and updates its examiner’s training curriculum to ensure that examiners
have the knowledge, skills, and abilities needed to supervise banks effectively. As a result,
OCC examiners have a broad background on which to base their assessment of the condition of
national banks.

The average experience level of OCC’s examining staff is more than 14 years. Many years of
experience on the job gives the typical examiner insight and perspective from observing and
analyzing banks of all kinds in different areas and through various economic conditions. This
broad knowledge base enhances the advisory function that examiners can provide to bank
management and boards of directors.


                   The OCC’s Outreach Program
The OCC supports national banks by being a leading source of regulatory and supervisory
information for the financial services industry. In addition to performing regular on-site
examinations and periodic supervisory updates, the OCC disseminates information on emerging
issues, supervisory concerns, and industry best practices covering a wide range of issues. These
programs include instructor-led workshops designed exclusively for community bank directors




                                                 8

                             A Guide to the National Banking System




and telephone seminars aimed at community national banks but available industry-wide through
common technology. These high-quality, cost-effective programs have immediate, practical
application and focus on critical industry issues and trends.

Moreover, OCC district and field office staff regularly sponsor outreach meetings with bankers
and other local financial service industry stakeholders. Agendas organized to meet the specific
needs of the local audience typically include examiner presentations and roundtable discussions
on timely supervision matters where participants share ideas and offer different perspectives on
the issues of the day. Presentations cover such topics as legal and regulatory developments and
changes in banking laws, credit underwriting, retail credit, fraud detection and prevention, interest
rate risk, economic updates, community development and investments, consumer and Community
Reinvestment Act compliance, Bank Secrecy Act, anti-money laundering, audit, and corporate
activities.

The OCC’s frontline managers are involved in these outreach efforts. District deputy
comptrollers, ADCs, and EICs forge strong relationships with a wide range of industry groups,
serving as OCC spokespersons at meetings and conferences with bank executives, boards of
directors, and officials of other federal, state, and local government agencies. They also meet
with public interest groups and other members of the public to discuss matters of mutual interest
and to clarify and enhance understanding of OCC policy.


                                Communications
The OCC is committed to continual, effective communication with national banks.
Communication includes formal and informal conversations, meetings, and written policy
guidance and examination reports. The OCC strives to be professional, objective, clear,
informative, and consistent in all communications. Examiners communicate with bank
management and board members as often as the bank’s condition and interests and the examiners’
findings require.

The OCC periodically provides material to bankers about changes in laws, regulations, and
supervisory policy. Issuances also discuss emerging issues, threats to the banking industry,
and possible frauds. The OCC disseminates information in advisory letters, alerts, bulletins,
handbooks, and manuals. Issuances are available electronically to the industry and general public
on the OCC’s Web site and through BankNet for national banks.

The Comptroller’s Handbook, which contains policies and procedures for national bank
examinations, is updated regularly. The handbook provides in-depth discussions of the various
aspects of bank products and services, including associated risks. Additionally, the handbook
(http://www.occ.treas.gov/handbook/chndbk.htm) provides guidance on the OCC’s expectations
for management and oversight.




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                             A Guide to the National Banking System




The Comptroller’s Licensing Manual (Licensing Manual) explains OCC policies and procedures
for establishing, acquiring, or converting to a national bank, and effecting structural changes and
corporate expansion. The Licensing Manual (http://www.occ.treas.gov/corpapps/corpapplic.htm)
describes requirements for corporate applications and the processes for public comment and OCC
review and analysis of both.

The OCC also disseminates information on “best practices” to strengthen the national banking
system. This includes information on various subjects, such as credit underwriting, privacy, and
community development.


                            Assessments and Fees
The OCC is a nonappropriated federal agency funded through assessments and fees paid by
national banks. The OCC publishes an assessment and fee schedule at least annually in a bulletin
entitled, “Notice of Comptroller of the Currency Fees.” A copy of the current schedule may be
obtained from the OCC’s Communications Division or by visiting our Web site at http://www.
occ.treas.gov/.




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                              A Guide to the National Banking System




                 The National Bank Charter

T   he national bank charter is a flexible, dynamic license to provide a broad array of financial
products and services. This section describes how the OCC’s licensing process works, in general,
and then focuses on alternative means of entry into the national banking system, such as acquiring
a national bank charter. It then describes the broad range of activities available to national banks
and how they may be structured.


                     The OCC’s Licensing Process
The Licensing Manual describes requirements for:

        •	   Applications to establish, acquire, or convert to a national bank, and

        •	   Existing national banks to effect corporate changes, including geographical
             expansion through branching, merger, acquisition, and structural changes to
             enable delivery of new products or services.

The Licensing Manual sets out OCC’s policies and step-by-step procedures, so that applicants
know what to do and what to expect from the OCC. The OCC works continually to streamline
application filing and review processes and to minimize burden, consistent with maintaining
safety and soundness and satisfying statutory requirements. Staff conducts internal reviews and
obtains feedback from applicants to spot areas for improvement.

The Licensing Manual is available on the OCC’s Web site, including current application forms.
The OCC is equipped to accept an ever-increasing volume and variety of application material
electronically from national banks through e-Corp on National BankNet.

Licensing and legal staffs in the district offices and national headquarters are available by
telephone, e-mail, or meetings, to advise applicants and answer their questions. This is
particularly useful for the early discussion of proposals that are unusual or highly complex.

The OCC will accept draft applications and provide feedback to applicants before they file an
application. The OCC may approve or conditionally approve or deny any filing after reviewing
the application and considering all relevant factors. The OCC may impose conditions if it
determines that they are necessary or appropriate to ensure that approval is consistent with
applicable statutes, regulations, OCC policies, and safe and sound banking practices.




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                              A Guide to the National Banking System




Entry into the National Banking System
There are two dominant ways that an organizing group, company, or bank can enter the national
banking system:

        •	   Establish a new national bank.

        •	   Convert an existing institution to a national bank.

A national bank may be owned directly by individuals or a holding company. The OCC
requires each proposed organizer, director, principal shareholder, and executive officer to submit
biographical and financial reports in connection with applications for de novo charters and certain
other types of corporate applications. The OCC conducts background checks to assess a person’s
competence, experience, integrity, and financial ability, to determine the person’s qualification to
serve in the proposed capacity. The OCC also may require certain information from a corporate
filer along with financial reports. (See the Interagency Biographical and Financial Reports form
in the “Background Investigations” booklet of the Licensing Manual.)

Establish a New National Bank
The OCC approves proposals to establish national banks that will foster healthy competition,
operate in a safe and sound manner, and have a reasonable chance of success. In so doing,
the OCC does not guarantee that a proposal to establish a national bank is without risk to the
organizers or investors. The OCC’s decision on a proposed new charter depends primarily on its
assessment of the organizers’ qualifications, choice of management, and strength of their business
plan.

Given the importance of strong, new, independent charters and the serious commitment
required from an organizing group, the OCC encourages early contact with licensing staff so
that organizers can discuss plans and confirm required steps in the chartering process. Once
an organizing group is ready to proceed, the OCC will schedule a prefiling meeting, which all
organizers must attend.

Throughout the chartering process, the OCC’s licensing staff works closely with local examiners
who will supervise the new bank. By the time a new bank opens at the end of a successful
chartering process, staff from the OCC’s supervisory office and the organizers normally will
be well acquainted with each other. (See the “Charters” booklet of the Licensing Manual for a
complete discussion of the chartering process.)




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                                   A Guide to the National Banking System




Convert an Existing Institution to a National Bank
Another alternative for entering the national banking system is to convert a financial institution
with a different type of charter. Under applicable statutes and regulations, state banks, state
savings banks, and other state banking institutions engaged in the business of receiving
deposits, as well as federal savings associations, may convert directly to national bank charters.1
Conversions generally are not subject to a public notice and comment period. The OCC has
an expedited process for converting institutions that have favorable ratings from their current
regulators and a sound capital structure. A detailed discussion of conversion transactions is
contained in the “Conversions” booklet of the Licensing Manual.


                Permissible National Bank Activities
National banks may engage in activities that are part of, or incidental to, the business of banking,
or are otherwise authorized for a national bank. The OCC publishes Activities Permissible for
a National Bank, available on the OCC’s Web site. The business of banking is an evolving
concept, and the permissible activities of national banks similarly change over time. Accordingly,
this list contained in the publication is not exclusive; the OCC may permit national banks to
conduct additional activities in the future. Any activity described in the publication’s summary as
permissible for a national bank also is permissible for an operating subsidiary of a national bank.

The national bank charter permits several options for corporate structure. This gives national
banks flexibility to structure their operations in whatever way is most advantageous for them.
Applications by national banks for changes to enable them to engage in new activities may be
subject to the OCC’s licensing process, as described earlier. OCC licensing and legal experts
are available for consultation and advice. Examiners from the bank’s local supervisory office, or
specialists elsewhere in OCC, can help evaluate any supervisory implications of new proposals.

A national bank does not need OCC approval to perform any bank-permissible activity directly in
the bank. Banks may alternatively perform activities through other structures, including:

         •	   An operating subsidiary.

         •	   A financial subsidiary.

         •	   A bank service company.

         •	   Other equity investment.



1
 Indirect conversions also could occur through merging an interim national bank with the state-chartered entity or
federal savings association. For a discussion of mergers involving interim banks, see the “Business Combinations”
booklet of the Licensing Manual.




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                              A Guide to the National Banking System




Following are brief descriptions of these alternatives.

Operating Subsidiary
An operating subsidiary is a means through which national banks are authorized to conduct their
business. It can be a corporation, limited liability company (LLC), or similar entity. It must be
controlled by the national bank, and it may conduct any activity that the parent bank could engage
in directly, either as part of, or incidental to, the business of banking, as determined by the OCC
or other statutory authority. Although prior OCC approval is required in some cases, simple after-
the-fact notice to the OCC may be sufficient in other cases. For further information on operating
subsidiaries, see OCC regulations at 12 CFR 5.34 and the “Investment in Subsidiaries and
Equities” booklet of the Licensing Manual.

Financial Subsidiary
As authorized by the Gramm-Leach-Bliley Act, a financial subsidiary is a corporation, LLC, or
similar entity, controlled by one or more insured depository institutions, that conducts activities
that are “financial in nature” or incidental to financial activities. Financial subsidiaries do not
include operating subsidiaries or bank service companies. However, a financial subsidiary
may perform activities permissible for national banks to engage in directly in conjunction with
activities that are financial in nature or incidental to financial activities. For a bank to own a
financial subsidiary, the bank and the subsidiary must meet certain requirements and comply with
safeguards. For further information on financial subsidiaries, see OCC regulations at 12 CFR
5.39 and the “Investment in Subsidiaries and Equities” booklet of the Licensing Manual.

Bank Service Company
National banks also may make investments in bank service companies. A bank service company
is a corporation, whose capital stock is owned by one or more insured banks, or a LLC, whose
members are insured banks. National banks are specifically authorized to control this type of
subsidiary by the express terms of a federal statute. Bank service companies may conduct only
activities a bank could perform directly, unless the Federal Reserve authorizes them to conduct
other activities permissible for bank holding companies. If the bank service company has
national and state bank shareholders or members, the activities conducted must be permissible for
all of the insured banks. For further information, see the Bank Service Company Act, 12 USC
1861-1867, OCC regulations at 12 CFR 5.35, and the “Investment in Subsidiaries and Equities”
booklet of the Licensing Manual.

Other Equity Investment
A national bank and its operating subsidiary may make a noncontrolling investment, or hold
a minority interest, in certain enterprises. The OCC regulation (12 CFR 5.36) provides for an
after-the-fact notice process if the enterprise is engaged in an activity permissible for after-the-




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                             A Guide to the National Banking System




fact notice under the OCC’s operating subsidiary regulation (12 CFR 5.34) or if the activity
is substantively the same as that contained in published OCC precedent on noncontrolling
investments.

Other investors in the business may be other banks or nonbank companies. Minority investments
may be used as a way to limit costs, or to enable a bank to engage in a line of business with
partners possessing particular experience or other important attributes. This option, therefore,
provides national banks with significant business flexibility. For further information, see OCC
regulations at 12 CFR 5.36 and the “Investment in Subsidiaries and Equities” booklet of the
Licensing Manual.




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                             A Guide to the National Banking System




                 Supervision and Oversight



                                       Overview
T    he OCC strives to deliver to all national banks the highest possible quality of bank
supervision. Supervisory efforts are directed toward identifying material problems, or emerging
problems, in individual banks or the banking system, and toward ensuring that such problems are
corrected appropriately. Because banking is essentially a business of managing risk, supervision
is centered on the accurate evaluation and management of risks. The OCC believes that bankers,
and not regulators, should manage their banks. As a result, the OCC expects banks to establish
and follow appropriate risk management practices.

The OCC uses an integrated risk-based approach to supervision. The goal of this approach is
to maximize the effectiveness of the OCC’s supervision process by assessing all bank activities
under one supervisory plan. With this integrated approach, each supervisory office ADC or
large bank EIC has responsibility for all supervisory activities, including safety and soundness,
information technology, asset management, and compliance. Integrating all examining areas
under one supervisor ensures that the OCC assesses risks in all areas using the same criteria and
that the most significant risks to the bank will receive the most supervisory attention.

Clear and meaningful communication between the OCC and the banks it supervises is a
vital component of high-quality supervision. To that end, the OCC publishes on its Web site
examination procedures and guidance about evolving issues so that bankers are apprised of OCC
examination and supervision activities.


                              Supervision by Risk
Examiners meet with bank management and the bank’s board of directors throughout the
supervisory cycle to obtain information or discuss issues. At the completion of the cycle, the
examiners prepare a report and conduct a meeting with the bank’s board of directors to discuss
the results. Those meetings allow participants to discuss the objectives of the OCC’s supervision;
strategic issues that may be confronting the bank; any major concerns, risks, or issues that may
need to be addressed; and other matters of mutual interest.

An environment in which examiners and board members communicate openly and honestly
benefits a bank. OCC examiners and professional staff have experience with a broad range of
banking activities and can provide independent, objective information on safe and sound banking
principles and compliance with laws and regulations.




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                             A Guide to the National Banking System




                                 Risk Assessments
The OCC’s primary supervisory objective is to assess each bank’s ability to identify, measure,
monitor, and control risks through its risk management systems. The OCC does this through
its risk assessment process. The OCC has defined nine categories of risk for bank supervisory
purposes. Those risks are credit, interest rate, liquidity, price, foreign currency translation,
transaction, compliance, strategic, and reputation.

From a supervisory perspective, risk is the potential that events, expected or unanticipated, may
have an adverse impact on the bank’s earnings and capital. The simple existence of risk is not
necessarily reason for concern. To put risks in perspective, the OCC determines whether the
risks a bank plans to undertake are warranted. Generally, risks are warranted when they are
understandable, measurable, controllable, and within the bank’s capacity to readily withstand
adverse performance.

Examiners assess the quantity of risk and the quality of risk management. They then assign each
risk an aggregate assessment (low, medium, or high) and determine whether the risk is expected
to decrease, increase, or remain stable over the next 12 months.


                                           Ratings
Additionally, all financial institutions are evaluated and rated under the Federal Financial
Institutions Examination Council’s (FFIEC) Uniform Financial Institutions Rating System.
This system, which is referred to as the CAMELS rating, assesses six components of a bank’s
performance: Capital adequacy, Asset quality, Management administration, Earnings, Liquidity,
and Sensitivity to market risk. Each component is rated on a scale of 1 to 5, with 1 being the
most favorable rating.

A composite or overall rating ranging from 1 to 5 also is assigned under the CAMELS rating
system. A rating of “1” indicates the strongest performance and risk management practices
relative to the institution’s size, complexity, and risk profile. Those institutions present the least
level of supervisory concern. Conversely, a 5-rated institution demonstrates critically deficient
performance, inadequate risk management practices, and the highest level of supervisory concern.


                     Specialized Area Supervision
The OCC also reviews specialized functions and areas not specifically addressed in the CAMELS 

ratings. This includes the Community Reinvestment Act, USA PATRIOT Act (amended the 

Bank Secrecy Act), consumer compliance, information technology, and asset management. 

These supervisory programs are risk based and generally integrated into the CAMELS reviews. 

Examiners with greater knowledge of specialized areas typically conduct the reviews of areas and 

activities that are deemed high-risk.





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                            A Guide to the National Banking System




For example, the OCC employs compliance specialists who conduct compliance examination
work. These compliance specialists report to an ADC or a large bank EIC. In a small bank,
generalists usually lead the examination and may be assisted by other generalists, compliance
specialists, and other specialty (information technology and asset management) examiners. In a
large bank, a compliance specialist generally will lead the compliance examination, assisted by
other compliance specialists, generalists, and specialty examiners.




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                             A Guide to the National Banking System




                        Checks and Balances


T   he OCC builds checks and balances into its high-quality bank supervision program through
a number of offices, including the offices of the Ombudsman and Program and Management
Accountability.


                                The Ombudsman
The Office of the Ombudsman is a distinct division of the OCC that operates independently of
the agency’s bank supervision function. The three primary functions of the Ombudsman’s office
are: the National Bank Appeals Process, the Bank Examination Questionnaire, and the Customer
Assistance Group (CAG). These units share a common goal: to act as catalysts for improvement
in the industry and the agency. The Office of the Ombudsman is committed to the core principles
of timely and fair dispute resolution and quality customer service.

National Bank Appeals Process
The Office of the Ombudsman administers a national bank appeals process. Established in 1993
and modified in 2002, this process ensures that national banks receive a fair and expeditious
review of OCC decisions and actions. The Ombudsman functions independently, outside of the
bank supervision and examination area, and reports directly to the Comptroller. With the consent
of the Comptroller, the Ombudsman may supersede any OCC decision or action during the
resolution of an appealable matter.

Bank Examination Questionnaire
The OCC solicits and receives feedback routinely from the banking industry through
“examination questionnaires” and “satisfaction surveys” that accompany reports of examination
and decisions on corporate applications, respectively. The OCC uses these tools to gather candid
and timely feedback from bankers and others. Bankers’ feedback enables OCC management
to evaluate the overall effectiveness of supervision and licensing processes and to refine and
make improvements continuously. These measurement tools may be completed and submitted
electronically through National BankNet.

Customer Assistance Group
The Customer Assistance Group (CAG) acts as a liaison between national banks and their
customers. CAG’s assistance with customer problem resolution reflects OCC’s commitment to
ensure fair access to financial services and fair treatment for all national bank customers. CAG




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                            A Guide to the National Banking System




provides complaint trends and consumer issues through detailed reports, onsite meetings with
bankers, and direct consultation with OCC’s supervision staff. Information identified from the
complaints can serve as an early warning system that alerts the bank and the OCC to potential
areas of risk.

A recent enhancement to CAG services has been the development of CAGNet. This is a Web-
based “business-to-business” application that facilitates the paperless transfer of consumer
complaints, the banks’ responses, and analytical reports via a secure and dedicated extranet
application. In addition to improving complaint resolution time, CAGNet has decreased the
burden on the industry. To date, CAGNet is available to national banks and may be accessed
exclusively through National BankNet.


       Program and Management Accountability
The OCC’s Program and Management Accountability (PMA) units, composed of the Quality
Management Division and the Program Analysis Unit, report directly to the Comptroller through
the Comptroller’s Chief of Staff. The PMA units administer the OCC’s internal audit, internal
review, program analysis, and also serve as liaison to other audit and investigative offices.

The Quality Management Division oversees enterprise risk management issues, promotes
performance excellence initiatives, and manages the liaison function. The Program Analysis Unit
provides sophisticated analytical support in the areas of program analysis, budget review, and
staffing plans. These units work together to ensure that: 1) the OCC’s programs are achieving
intended results, 2) resource usage is aligned with the agency’s mission, 3) resources are
protected from waste, fraud, and abuse, 4) applicable laws and regulations are followed, and 5)
reliable and timely management information systems support decision-making.




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                                     A Guide to the National Banking System




                      Appendix A: OCC Locations


                WA

                               MT          ND                                                     VT      ME
                                                       MN                                                                Virgin Islands
           OR
                                                                                                           NH
                     ID                    SD                    WI                                         MA
                                                                                                 NY
                                WY                                      MI                                     RI        Puerto Rico
                                                                                                          CT
                                                        IA                                 PA           NJ
                NV                          NE
                                                                                 OH
                          UT                                      IL   IN                              DE
          CA                        CO                                                WV               MD
                                             KS                                             VA
                                                        MO                  KY
                                                                                            NC
                                                                        TN
                      AZ                          OK
                                NM                          AR                         SC
                                                                  MS   AL        GA
                                                            LA
                                             TX
     AK
                                                                                                                    Central District
                                                                                       FL
                                                                                                                    Northeastern District
                                                                                                                    Southern District
                     Guam            HI                                                                             Western District



The following pages list headquarters divisions that are referenced in this guide and telephone
numbers for district offices. For a complete directory of OCC offices, consult the OCC Web site
at http://www.occ.treas.gov/.




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                            A Guide to the National Banking System




                    Appendix B: OCC Contacts

General Information
Office of the Comptroller of the Currency
250 E Street, SW
Washington, DC 20219-0001

Telephone               (202) 874-5000
Web site                http://www.occ.treas.gov


Selected Headquarters Divisions
Chief Counsel
Telephone               (202) 874-5200
Fax Number              (202) 874-5374

Provides legal advice on a broad range of banking law questions, federal securities laws,
electronic banking, consumer protection laws, corporate structure and governance, lending limits,
affiliate insider transactions, international banking, among other banking matters.

Chief National Bank Examiner
Telephone               (202) 874-2870
Fax Number              (202) 874-5352

Has responsibility for formulating and disseminating the OCC’s supervision policies to promote
national bank safety and soundness and compliance with laws and regulations. The department
issues policy, guidance, and examination procedures related to national banks’ commercial,
consumer, asset management, capital markets, and community compliance activities.

Communications
Telephone               (202) 874-4700
Publications            (202) 874-4884
Fax Number              (202) 874-5263

Provides information, publications, and design services for the OCC. It also operates and
oversees the Public Information Room, which offers access to OCC public documents; and
processes initial requests filed under the Freedom of Information and Privacy Acts.




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                              A Guide to the National Banking System




Community Affairs
Telephone               (202) 874-5556
Fax Number              (202) 874-4652

Helps national banks to provide community development financing and retail services to
underserved consumers and communities. Staff, located in headquarters and the districts, provide
assistance on local community development resources; sponsor forums for exchanging ideas
among lenders, community groups, and government officials; conduct research and develop
publications on best practices; and administer the OCC’s Part 24 Community Development
Investment Authority.

Community Bank Activities
Telephone               (202) 874-4861
Fax Number              (202) 874-5305

Coordinates the OCC’s efforts to reduce burden and assist in making supervision more effective
and helpful for community banks.

Compliance
Telephone               (202) 874-4428
Fax Number              (202) 874-5221

Has responsibility for the development of compliance policy and examination procedures and
liaison with compliance experts in the field and with other agencies.

Customer Assistance Group (CAG)
Comptroller of the Currency
1301 McKinney, Suite 3450
Houston, Texas 77010

Toll-free Number        (800) 613-6743
Fax Number              (713) 336-4301

E-mail                  Customer.assistance@occ.treas.gov

Acts as a liaison between national banks and their customers but is not an advocate for either
party. CAG provides assistance with problem resolution. It also evaluates complaint trends and
consumer issues, serving as an early warning system for potential areas of risk.




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                              A Guide to the National Banking System




International Banking and Finance
Telephone                 (202) 874-4730
Fax Number                (202) 874-5234

Has responsibility for maintaining relations and information exchange with foreign supervisors,
coordinating OCC participation in the FBO Supervision Program in support of the supervision of
federal branches and agencies, and assessing potential risks associated with banks’ cross-border
exposures.

Large Bank Supervision
Telephone                 (202) 874-4610
Fax Number                (202) 927-0631

Has responsibility for supervision of the largest national banking companies that generally are
involved in more complex activities and operate over wide geographic areas.

Licensing
Telephone                 (202) 874-5060
Fax Number                (202) 874-5293
Web site                  bos@occ.treas.gov

Has responsibility for developing and applying OCC licensing policy. It provides support and
guidance to the district licensing staffs in their processing of applications filed in the districts.

Midsize Bank Supervision
Telephone                 (202) 874-0685
Fax Number                (202) 874-5339

Has responsibility for supervision of midsize national banking companies and credit card banks
that generally are involved in more complex activities than community banks and operate over
wide geographic areas.

Ombudsman
Comptroller of the Currency
1301 McKinney Street, Suite 3400
Houston, Texas 77010

Telephone                 (713) 336-4350
Fax Number                (713) 336-4351

Has responsibility for overseeing the national bank appeals process and the customer assistance
group.




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                             A Guide to the National Banking System




OCC District Offices
Northeastern
1114 Avenue of the Americas                      (212) 819-9860
Suite 3900                                       Fax (212) 790-4098
New York, NY 10036-7780

Deputy Comptroller                               (212) 790-4001

District Counsel                                 (212) 790-4010

Licensing Manager                                (212) 790-4055

Supervises most national banks headquartered in Connecticut, Delaware, District of Columbia,
Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina,
Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Vermont, Virginia, the Virgin Islands,
and West Virginia. Generally, field or local satellite offices also are located in these states.

Southern
500 North Akard Street, Suite 1600               (214) 720-0656
Dallas, Texas 75201-3394                         Fax (214) 720-7000

Deputy Comptroller                               (214) 720-7005

District Counsel                                 (214) 720-7012

Licensing Manager                                (214) 720-7052

Supervises most national banks headquartered in Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, Oklahoma, Tennessee, and Texas. Generally, field or local satellite offices also are
located in these states.




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                              A Guide to the National Banking System




Central
One Financial Place, Suite 2700                  (312) 360-8800
440 South LaSalle Street                         Fax (312) 435-0951
Chicago, Illinois 60605-1073

Deputy Comptroller                               (312) 360-8802

District Counsel                                 (312) 360-8805

Licensing Manager                                (312) 360-8851

Supervises most national banks headquartered in Illinois, Indiana, Kentucky, Michigan,
Minnesota, Missouri, North Dakota, Ohio, South Dakota, and Wisconsin. Generally, field or local
satellite offices also are located in these states.

Western
1225 17th Street, Suite 300                      (720) 475-7600
Denver, Colorado 80202                           Fax (720) 475-7690

Deputy Comptroller                               (720) 475-7603

District Counsel                                 (720) 475-7630

Licensing Manager                                (720) 475-7650

Supervises most national banks headquartered in Alaska, Arizona, California, Colorado, Guam,
Hawaii, Idaho, Iowa, Kansas, Missouri, Montana, Nebraska, Nevada, New Mexico, Northern
Mariana Islands, Oregon, Washington, Wyoming, and Utah. Generally, field or local satellite
offices also are located in these states.




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                             A Guide to the National Banking System




                 Appendix C: OCC Publications
OCC publications that you may find useful are listed in this appendix. To request an order form
and a list of publications, contact the OCC’s Communications Division at (202) 874-4700.
Electronic copies of these and other OCC publications are available in a downloadable and
searchable format on the OCC’s Web site at http://www.occ.treas.gov/.

Comptroller’s Licensing Manual
The Licensing Manual consists of a series of booklets. The booklets explain the OCC policies
and procedures to form a new national bank, for existing institutions to enter the national banking
system, for individuals to acquire control of a national bank, and for national banks to effect
structural changes and expand activities.

Comptroller’s Handbook
This handbook consists of a series of booklets on fundamental topics of bank supervision. The
Community Bank Supervision and Large Bank Supervision Handbooks explain the OCC’s
supervisory approaches for these two lines of business and contain standards and procedures that
guide examiners in reaching conclusions about a bank’s operations. Other booklets provide more
detailed descriptions and examination procedures for areas.

Comptroller’s Handbook for Asset Management
This publication consists of several booklets that present policies and procedures for the
examination of the asset management activities of national banks.

Comptroller’s Handbook for Compliance
The booklets comprising this publication contain the procedures used in examining national
banks for compliance. The handbook is a supervisory tool for examiners performing compliance
examinations and a self-assessment tool for bankers analyzing bank compliance systems.

Selected Other OCC Publications
Activities Permissible for a National Bank. This report describes the activities that are authorized
for a national bank as part of, or incidental to, the business of banking.

The OCC Annual Report. This report sets forth the agency’s accomplishments in supervision,
regulation, risk analysis, and chartering. It also describes management initiatives, financial
management results, and OCC outreach to industry, community, and consumer organizations.




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                              A Guide to the National Banking System




Detecting Red Flags in Board Reports – A Guide for Directors, Comptroller of the Currency,
October 2003. This booklet describes information generally found in board reports that national
bank directors use to meet their fiduciary responsibility. It highlights red flags that may signal
existing or potential problems.

The Director’s Book: The Role of the National Bank Director, Comptroller of the Currency,
March 1997. This publication provides general guidance to directors of national banks.

Interpretations and Actions. This publication is published monthly and has been available on the
OCC’s Web site since May 1996. It includes legal staff interpretations, trust interpretative letters,
securities letters, and bank accounting advisory series, which represent the informal views of
the Comptroller’s staff concerning the applications of banking law to contemplated activities or
transactions.

National Banks and the Dual Banking System, Comptroller of the Currency, September 2003.
This paper explains the history and features of the “dual banking system” and discusses the
judicial and legislative precedents establishing the constitutional limits on the ability of states to
control or direct national bank powers conferred under federal law.

Quarterly Journal. This publication is published in March, June, September, and December and
has been available on the OCC’s Web site since 1997. It is the journal of record for the most
significant actions and policies of the OCC. It is published only in electronic form four times a
year.

Report of the Ombudsman, Comptroller of the Currency, December 2002. It includes descriptions
of the appeals process, the Customer Assistance Group, and the results of the examination
questionnaires.




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